MASTER 

NEGATIVE 

NO.  95-82349 


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Goff,  Guy 


mpl5 

basic  princi 
[Washington] 


establish 


COLUMBIA  UNIVenSITY  LIBRARIES 
PRESERVATION  DIVISION 

BIBLIOGRAPHIC  MICROFORM  TARGET 


MASTER  NEGATIVE  • 


OnOINAL  MATERIAL  AS  FILMED  -  EXISTING  BIBLIOGRAPHIC  RECORD 

GOff.  Ouy  D  ,  :  ^ 

A  simple  plan  to  establish  the  basic  prlnciple||ii 
controlling  the  establlsbnent  of  ship  values  of 
United  States  shipping  board  vessels..  A 

discussion  and  resblutions  offered  on  January  5th, 
1920  to  tlie  United  States  shipping  board  to  carry 
the  plan"  into  effect  9  by -Guy  D.  Gaff  .  .. 
ItoahingtonT 

16  p.        31  cm. 
\  Prepared  in  collaboration  with  Martin  J'.  Gillen, 
John  Barton  Payne,  Admiral  W.  S.  Benson,  and 
L.  L.  Summers. 


RESTRICTIONS  ON  USE: 


TECHNICAL  MICROFORM  DATA 


REDUCTION  RATIO:  l'^>^ 


IMAGE  PLACEMENT:  lA  IB  IIB 


DATE  I^LMED:  3-"?~»^ 


INITIALS. 


TRACKING  «  : 


FILMED  BY  PRESERVATION  RESOURCESi  pETHLEHEM,  PA. 


2i 


A  SIMPLE  PLAN 

to  Establish  the  Basic  Principles 
Controlling  the  Establishment 

of 

SHIP  VALUES 

of 

United  States  Shipping  Board  Vessels 


f 

■J  r , 

4p- 


Prepared  in  collaboration  with  BfAmTiM  J.  Gilubn,  former  member  of  the  War 
Iniiiialries  Board  Organization  and  Special  Assistant  to  Chairmen  of  the  U.  S. 
Shipping  Board,  John  Baxton  Payne  and  Admiral  W.  S,  Bsnson;  L.  L. 
SuifiixBS,  former  member  of  the  War  Industries  Board  Organization,  and 
technical  advisor  to  the  Allied  Peace  Commission  at  Paris;  and  Guy  D.  Goff, 
piwsent  commissioner  of  the  U.  S.  Shipping  Board. 


A  DISCUSSION  and  I?.ESOLUTIONS 

offered  on  January  5th,  1921  t<Hbe  United  States 
Shipping  Board  to  carry  the  Plan  into  effect 

By 

GUY  D.  GOFF 

CommUsiotur  of  U.  S.  Shipfing  Board  \ 


J)  ^ 


 iiiiinii 


Jmmry  d,  1021 


FeUotv  Commmkmers  of  the  Skipping  Board: 

From  the  time  that  I  first  foecame  cmmected  as  an  em- 
ploye of  this  Corporation  on  June  1st,  1920,  down  to 
Decemher  1st  of  last  year,  when  I  became  a  member  of  the 
Board,  there  has  ever  been  dWsed  in  Congress,  by  the 
pubhc  generally  and  by  the  ollcers  of  this  Corporation, 
the  price  at  which  the  steel  cargo  boats  should  be  offered 
to  the  public.  Cimgress,  in  the  Jones  Bill,  granted  to  the 
Shipping  Board  full  and  discretionary  right  to  establish 
the  price  at  which  these  boats  should  be  sold  and  absorbed 
by  private  industry.  The  testimony  taken  before  the 
Senate  Commerce  Committee,  prior  to  the  enactment  of 
the  Jones  Bill;  the  voluminous  evidence  gathered  by  the 
Shipping  Board ;  the  editorial  comment  of  tlic  country,  and 
the  information  furnished  by  the  private  shipping  interests 
of  America,  has  not  as  yet  thrown  light  upon  the  subject 
sufficient  to  enable  the  Shipping  Board  to  intelligently  es- 
tablish the  basic  prindjyles  which  would  enable  the  steel 
cargo  boats  to  be  absorbed  by  the  pubUc. 

The  growing  demand  for  the  lowering  of  the  price,  on 
the  purt  of  the  people  of  the  United  States,  as  evidenced 
by  the  editorial  comment  in  our  great  papers;  the  Con- 
gressional discussion  that  has  ensued;  the  financial  dis- 
tress of  the  pioneer  purchasers,  who  endeavored  to  try  out 
the  pohcy  of  the  Shipping^  Board  at  its  oW  prices— all 
urge  unmediate  action  on  the  part  of  the  Shipping  Board 
to  establish  basic  principlell.  As  a  Commissioner,  I  have 
no  eompkmt  or  criticism  of  this  demand,  nor  of  the  state- 
ment of  Congressman  James  W.  Good,  Chairman  of  the 
Appropriations  Committee  of  the  House,  made  on  the 
floor  of  the  House  last  Friday,  for  I  can  readily  appreciate 
that  his  state  of  mind  is  one  of  honest  exasperation,  due  to 
the  failure  upon  the  part  of  the  €kyvemment  in  its  ship- 
ping branch,  to  establish  basic  principles  for  the  sale  of 
its  boats  in  order  to  carry  out  the  will  of  Congress ;  to  wit, 
that  the  assets  of  the  Shipping  Board  be  sold  and  that  the 
Merchant  Marine  should  be  privately  owned  and  operated; 
and  that  in  making  the  sale,  new  trade  routes  should  be 
protected  insofar  as  possible.  The  mandate  ^aell  the 
hoats  at  menshantable  prices;  establish  an  AmeJiean  pri- 
vately owned  and  operated  Merchant  Marine,  cameiirom 


4 


cwy  section  of  the  United  States  and  from  the  RepuhM- 
can  and  Democratic  party  alike,  with  the  Pfoideiit  of 
the  United  States  and  the  Pfesident-elect  in  harmony  wMi 
it ;  ami  to  it  is  my  pnrpoie  today,  as  far  as  I  am  concerned, 
to  take  fndi  affirmatiYe  and  prompt  action  as  afforded  me 
•nd  I  hope  my  associates  on  this  Board  may  aid  to  a  com- 
mon purpose. 

For  some  months  I  liaTe  given  considerable  study  to 
this  question  and  I  have  reached  the  conclusion,  without 
critidmi  of  anyone,  that  th^.  faOure  to  establish  the  basic 
principles  has  been  due  to  our  inability  to  see  through  the 
clouds  beyond  and  somewhere  approximate  the  future, 
rather  than  a  desire  on  the  part  of  the  Shipping  Board 
not  to  make  a  decision.  For  over  a  year  and  a  half  the 
discussion  concerning  prices  hm  ranged  about  the  follow- 
iiig  factors: 

(a)  the  cost  of  reproduction  at  liome  and  abroad— while 

#1.%        ^"^^"i  "^^^  ^^'^^      *  P^"""^      inflation  of  prices ; 
(III  tlie  earaing  capacity  of  the  boats  under  current 
ff%ht  markets; 

(c)  the  abiHty  of  the  purchaser  to  amortize  his  capital 
mwitiient  diifing  a  period  of  twenty  years  hence; 

(d)  the  abiUty  of  the  purchaser  to  induce  the  American 
farmer,  labormf  man.  widow,  large  and  smaU  trust 
company,  to  furnish  him  purchasing  capital,  while 

the  first  three  factors  were  so  indefinite  as  to  the 
i  and  the  deterrent  effect  of  the  sad  financial 
object  lesson  of  the  pioneer  purchasers  of  190  boats 
being  ever  before  the  investment  public  of  America. 

At  all  times  in  the  discussion  of  the  above  factors  I 
have  only  heard  diseuased  the  question  of  price,  namely, 
eitber  tbat  the  ships  should  be  sc^d  in  the  irst  instance  at 
the  price  wbicb  they  cost  the  Oovemment ;  or  later  at  the 
reproduction  cost,  less  depreciation  for  the  time  the  boats 
were  in  the  water;  and  still  later,  a  discussion  on  %un!i 
ranging  from  $150  a  DWT  to  $eO  a  DWT-^  disciLion 
ot  dollars-never  an  analysis  of  the  situation  to  cslabilsb 
t^e  basic  principle  of  sales  price,  wbidb  would  cause  the 
American  pubic  to  purdiase  and  invest  in  these  boats 
It  niust  be  kept  in  mind  that  these  boats  are  not  Liberty 
Itonds^the  best  security  in  the  world,  which  are  selling 
today  at  15%  below  the  par  value^but  ratbcr  are  tbcy 
oDjectsbuilt  durmg  war  times  for  the  purposes  of  national 
war  needs  and  whii*  must  now  be  ntiliied  for  an  entirely 
different  purpcpptf f  i.  r.,  in  jmvate  industry-^ld  at  such 
a  prro  tiiat  the  capital  purchase  price  of  them  will  be  re- 
towsd  to  tie  purchaser  over  a  period  of  twenty  years, 
witli  a  fair  mterest  return  on  his  money  during  tbat  pe- 
»>d.  He  to  take  all  of  the  risks  of  management,  all  of 


0 

the  risks  of  competition  with  foreign  shipping  interests 
and  of  national  and  international  depressions  for  the  next 
twenty  years.    Tben,  too,  it  must  be  kept  in  mind  tbat 
while  these  ships  cost  the  United  States  Government  an 
average  of  $215  a  DWT,  they  were  not  built  by  the  Gov- 
ernment as  an  investment  for  the  Government,  nor  for  use 
in  private  industry,  but  they  were  built  like  our  cantonments 
and  the  supplies  that  went  across  the  seas— to  take  care 
of  a  great  national  war  emergency  in  which  the  very  life 
of  the  nation  was  at  stake.  What  the  Government  paid 
for  in  building  those  ships  is  divided  into  two  parts: 

The  first  part  of  the  expenditure  went  purely  for  a  war  need 
and  was  destroyed — to  wit,  emergency  ocean  transportation  for 
its  troops  and  supplies  for  itself  imd  its  Allies  across  the  Seas. 
That  was  primarily  a  war  expense,  and  the  Government  must  and 
is  willing  to  stand  it.  This  factor  in  the  value  of  the  ships,  stands 
in  the  same  category  as  cantonments,  powder,  compensation  paid 
to  our  drafted  soldiers  while  in  the  service  of  the  Government  ■ 
the  supplies  consumed  during  the  war,  and  all  purchases  which 
were  destroyed  or  consumed  in  the  prosecution  of  the  war.  The 
public  and  Congress  well  recognize  and  have  assented  to  this 
doctrine,  which  is  not  new.  The  Shipping  Board  has  no  right, 
under  the  law,  nor  any  member  of  the  Board,  to  withhold  his 
decision  to  establish  the  proper  prices  under  the  mandate  of  Con- 
gress by  endeavoring  to  merchandise  this  factor.  It  departed 
when  the  emergency  expired.    It  is  ^  more. 

The  second  part  of  the  expenditure  went  into  steel  ships  that 
have  some  market  value — like  any  other  commodity  purchased  or 
sold  in  the  open  market  for  private  purposes ;  to  wit,  ships  that 
can  engage  in  the  private  commerce  and  return  to  the  owner 
thereof  an  income  on  an  established  capital  price,  while  in  com- 
petition with  the  other  privately  owned  ships  of  America  and  the 
shipping  interests  of  the  world.  Tlfere  are  two  parties  to  every 
free  sale — ^a  buyer  and  a  seller. 

*' 

It  is  in  reference  to  this  second  and  only  remaining  factor 
value  in  the  ships  no^  owned  by  the  Government— 
fAich  too  is  the  only  factor  before  us  for  consideration— 
that  I  desire  to  address  myself  to  you. 

Considerations  Bearing  Upon  the  Actual  Worth 
or  Value  of  Steel  Cargo  and  Other  Stael 
Boats  of  the  United  States  Shipping 

Board  from  a  Sales  Standpoint 

 I, 

THE  FIRST  COmiDEBATION% 

No  private  purchaser  or  corporation  can  be  induced  to 
purchase  Government  steel  cargo  boats  today  in  an  open 
and  free  market,  unless  he  is  assured  the  capital  that  he 
invests  in  that  boat  will,  in  a  measure,  be  a  saf^vest- 
ment;  that  it  will  be  returned  to  him  as  the  boat  dqireci- 


0 

ales  during  a  period  of  twenty  to  twenty-five  years,  and 
can  cam  during  that  period,  in  world  competilion,  suffi- 
cient inoome  to  pay  all  charges  of  operaticm  and  a  reason- 
able interest  rate  on  the  money  invested.  There  not  being 
enough  money  in  the  hands  of  people  desiring  to  purchase 
ship,  they  must  gp  to  the  American  inTestmg  public  to 
get  a  large  portion  of  the  money  they  desire  to  invest. 
Thus,  there  are  two  classes  of  people  interested  in  the  pur- 
of  boats.  There  is  the  first  or  original  purchaser, 
manages  and  operates  the  property;  and  there  is  sec^ 
ond,  the  silent  investor,  who  buys  the  common  or  pre- 
ferred stock,  or  takes  the  bonds  of  the  original  purchaser. 
The  original  purchaser  is  frequently  willing  to  speculate 
with  his  portion  of  the  investment  in  the  boat,  whidi  is 
usually  about  25%  of  the  purchase  price.   The  second 
class:  to  wit,  the  investors  who  are  made  up  of  the  farm- 
ing, labor,  widow  and  middle  classes  of  the  American  in- 
vesting puNijC  will  accept  no  specuktion;  those  who  ad- 
vise this  class  warn  against  speculative  investments.  These 
advisers  demand  that  the  capital  of  the  investing  public, 
who  are  silent  partners,  shall  be  invested  in  securities 
where  there  is  no  risk,  |or  as  a  rule,  the  return  on  this  form 
of  mvestment  is  modest  and  there  must  be  a  certainty  of 
interest  and  return  to  them  of  the  money  that  they  invest, 
as  silent  partners.    Those  who  advise  them — our  invest- 
ment bamkers — ^are  well  aware  today  of  what  ships  values 
are  and  are  likely  to  be  during  the  next  twenty  years.  It 
is  ri|^t  that  they  should  advise  their  dents — the  invest- 
ing public.   Hence,  until  the  values  on  our  steel  boats  are 
placed  on  the  proper  basis,  so  as  to  induce  the  silent  part- 

today  in  England,  there  wil  be  no  sale  of  the  Shipping 
Board  boats.  Let  a  canvass  be  made  of  the  Senators  and 
Congressmen  of  the  United  States  for  the  purpose  of  in- 
ducing them  to  invest  their  money,  or  the  money  of  any 
of  their  friends,  in  Shipping  Board  boat  securities  on  any 
other  basis,  and  you  will  find  that  they  will  refuse  and 
advise  their  friends  against  putting  a  dollar  into  shipping 
securities  except  <pi  proper  boat  values. 

 I  


THE  gE€miB  CON8IDEMATION: 

With      proper  value  fixed  on  the  steel  cargo  boats  of 
the  Si^f^  B(«rd,  the  Goremment  must  gnuit  mort- 

gi^^terms  to  the  original  purchasers  similar  to  those  al- 

/ 

 r 


7 


ready  wisely  established  by  the  Shipping  Board  under  the 
lones  Bill. 

THE  THIRD  CONSIDERATION: 

Unfortunately,  there  is  a  limited  market  into  which  the 
Shipping  Board  can  go  for  prospective  purchasers.  It  is 
almost  limited  at  the  present  time  to  176  corporations, 
known  as  the  operating  managers.   In  this  field  are  the 
original  privately  owned  shipping  corporations  who  own 
their  own  boats,  a  great  number  of  whom  have  already 
made  pioneer  purchases  from  the  Shipping  Board  and 
ruined  their  base  capital  investment  and  financial  credit, 
through  the  purchases  made.    The  toll  of  receiverships, 
which  is  before  us,  of  some  60  sales  out  of  approximately 
200  sales,  and  the  known  difficult  financial  positicin  of 
every  one  of  the  other  pioneer  purchasers  who  have  the 
balance,  or  140  boats,  upon  whom  the  Government  has 
tried  to  saddle  the  war  cost,  means  that  it  has  kiUed  off 
its  prospects  for  future  sales  and  any  opportunity  it  might 
have  in  the  American  investment  market  unless  it  re- 
adjusts these  sales  on  an  equitable  basis.    Sane,  honest 
business  judgment  is  requir^  before  the  balance  of  these 
pioneer  purchases  pass  into  receivership  and  our  future 
market  entirely  destroyed. 

If  the  Ford  Company,  Armour  &  Company,  the  In- 
ternational Harvester  Corp^tion,  the  United  States  Tire 
Company,  or  any  of  the  liher  great  industrial  corpora- 
tions of  America,  had  and  were  limited  to  a  definite  list  of 
prospective  purchasers,  and  then  destroyed  these  pur- 
chasers, there  would  be  nothing  left  for  those  large  indus- 
trial corporations  t(^  do  but  dose  their  doors  until  they 
could  grow  a  new  crop  of  purchasers  in  the  years  to  come. 
This  would  mean  financial  destruction  to  those  large  pri- 
vate institutions.  The  failure  on  the  part  of  the  Shipping 
Board  to  act  now  does  not  mean  the  destruction  of  the 
financial  fabric  of  our  Gk)vemment,  but  it  does  mean  a 
depreciation  and  waste  of  the  remaining  asset  values  be- 
longing to  our  Government,  in  its  steel  cargo  boats,  and 
the  destruction  of  its  pioneer  and  prospective  purchasers 
who  are  rapidly  bleeding  to  death  between  paying  inter- 
est charges  and  insurance — ^the  latter  item  is  almost  as 
large  as  the  item  of  interest — on  a  lar^l^d  false  capital- 
ization of  war  amortization,  a  continuaOln  of' which  is 
most  extrlilllpant  financial  waste  and  folly,  ^v 


8 

THE  FOUMTM  CONSIDERATION: 

That  .must  be  ilie  cslftkMsliiiieEt  of  a  htm  price  cxn  tiie' 
sted  cftrgo  lMMiti-4oii  for  ta*— divided  into  ekises  as  to 
llie  relative  superiority  of 

,         (a)  dicieiicj  in  service; 

(b)  the  iMcliinery  used;  and 

witb  a  depreeiation  wbicb  sbould  be  fixed  at  5%  a  year  for 
tie  time  in  use.  In  this  regard,  the  Shipping  Board  has 
alresdy  classified,  for  sales  purposes,  the  types,  makes  and 
kinds  of  boats  which  it  has,  from  an  efficiency  for  service 
standpoint.  The  present  ratio  of  prices  which  has  been 
established  between  these  differoit  classes  can  now  be 
'Implied  to  the  new  base  price  when  estabMshed,  and  no 
delay  need  ensne.  It  is  just  a  question  of  the  present 
ratio  and  simple  calculation,  for  the  Board  with  its  experts, 
in  the  past,  has  made  a  proper  and  fair  classification  for 
sales  purposes. 


THE  FIFTH  mNSIDEMATION: 

The  World  Tonnage.  The  best  authorities  maintain 
that  there  is  sufficient  steel  cargo  tonnage  in  the  world 
today  to  take  care  of  all  the  needs  of  world  transportation: 
the  present  world's  sted  tuinage  being  equal  to  120%  of 
the  world's  tonnage.  The  pent-up  and  accumulated 
after- war  demands  of  ocean  freight  have  been  absorbed. 
The  idle  boats  in  harbors,  at  home  and  abroad,  and  low 
ocean  rates  testify  silently  to  this  fact.  Henceforth,  the 
world  wil  return  to  a  normarpeace  time  bads  in  its  ocean 
transportation— back  to  the  n«|nd  ocean  f^  Addi- 
tional or  new  tonnage  will  be  biiilt  from  time  to  time  in 
the  ship  yards  of  the  world  when  needed  by  private  capital. 
This  consideration  is  but  a  small  factor,  if  any,  in  establish- 
ing the  present  base  value  on  the  steel  cargo  tonnage  in 
the  hands  of  the  Shipping  Board. 

THE  SIXTH  eONSmEBATION: 

Holding  the  "Five  Considerations"  above  stated  in 
mind,  we  approach  the  last,  and  the  oM  importmt  cormd- 
maim,  m  the  ietermmng  factor,  which  fixes  the  basic 
principle  for  establishing  the  values  of  our  present  com- 
modity; to  wit — steel  cargo  ships  for  sale  in  the  open, 
free,  commercial  i|iarkets  of  America,  subject  to  the  same 
economic  laws  y  any  other  American  conmaodity  when 
offered  for  sa|i^' 

There  ww  established,  and  in  existence  on  July  31st, 
1914,  a^rtain  standard  of  welfare,  prosperity  and  living 


0 

for  each  of  the  nations  of  the  world.   The  estabUshment 
and  stabilization  of  that  standard  of  welfare,  prosperity 
and  living,  had  been  the  result  of  the  economic  develop- 
ment of  each  of  those  nations  over  a  period  of  many  years. 
It  was  a  peace  time  standard  for  each— the  100%  stand- 
ard.   Into  the  making  of  it,  through  years  of  peaceful 
pursuit,  went  whatever  of  national  prosperity  of  natural 
resources,  of  producing  power,  of  wages,  and  of  commer- 
cial  mtercourse  with  other  nations,  that  was  possessed  by 
each  nation.  Most  of  these  naticms,  like  America,  through 
the  war,  were  thrown  off  from  this  standard  of  welfare, 
prosperity  and  living  that  had  been  established  as  of  July 
81st,  1914.    Within  the  last  five  months,  we  who  read 
know  that  the  United  States  is  rapidly  swinging  back 
agam  to  its  peace  time  standard  of  wdfare,  prosperity  and 
living.    A  comparison  between  the  general  commodity 
pnces  prevailing  (a)  on  or  about  July  81, 1914;  (b)  with 
those  of  1915, 1916,  1917,  1918  and  1919;  and  (c)  of  De- 
ranber  81,  1920,  will  show  us  the  light  and  give  us  the 
base  for  fixing  our  ship  values. 

Shortly  after  this  nation  went  to  wais  there  was  organ- 
ized in  this  country  a  Price  Fixing  CfMSimittee  of  the  War 
Industries  Board,  composed  of  most  distinguished  and  ex- 
pert Americans.  That  Committee  gathered  exact  data  as 
to  prices,  and  the  fluctuation  of  those  prices  during  the 
war,  in  order  to  establish  the  control  prices  at  which  the 
Government  purchased  for  itself  and  the  Allies  during  the 
war.  The  data  compiled  is  therefore  authoritative  and  un- 
questioned. It  is  a  Govemn^nt  record.  They  issued  an 
analysis  of  the  price  fluctuation  of  92  important  Ameri- 
can commodities  durmg  that  period,  and  gave  in  full  de- 
tail the  price  fluctuations  of  sted  products  from  the  mine 
to  the  mill. 

We  have  available  to  us: 

(a)  That  exact  data  from  1913  to  1919; 

(b)  Tlie  corresponding  records  of  December  31,  1920 
prices,  showing  where  those  commodities  have  receded, 
mth  deflatum  not  jfet  complete  m  thk  cmmtry; 

(c)  llie  prices  of  ships  built  in  America  and  the  United 
Kmgdom  from  1910  up  to  the  date  when  Europe  went 
to  war-during  peact  times  and  under  a  peace  time 
•standard  of  Uvmg;  and\ 

(d)  The  prices  at  wWch  ships  ^  buUt  in  this  country 
and  the  United  Kmgdom  from -1914  to  1919  at  war 
f  mie  costs.  | 

These  have  been  charted,  and  without  con^iliMit,  I  suhmit 
them  to  you  herewith.  They  have  formed  a  ^  and  defi- 
mte  judgmiat. 


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IS 


Four  grait  outstmiiliiig  fuels  are  appireiil  from  these 
igures: 

First:  That  shipbuilding  costs  in  the  United  Kingdom 
rose  from  $25.65  a  D WT-^the  normal  pre-war  cost,  under 
a  normal  standard  of  living  condition,  existing  from  1910 
up  to  and  including  Dec.  81,  1§18,  during  the  war,  from 
August  1,  1014  to  November,  1918—543% ;  while  in  the 
United  States,  from  a  starting  point  of  $45  a  DWT, 
under  similar  conditions,  for  the  same  period,  prices  rose 
477.770  .  The  price  of  no  important  commodity  in  Amer- 
ica during  the  war  anywhere  near  approximated  this  ah- 
noimal  mcrease  nor  caused  the  tremendous  war  wastage  in 
^lues  that  occurred  in  shipbuilding,  both  in  the  United 
Kmgdom  and  in  America,  except  steel  products  and  coke, 

Smomd:  That  this  great  increased  price  was  due  to  three 
things: 

(•)  Expensive  expansion  of  shipbuilding  plants  and  equip- 
ment — for  war  purposes  alone,  with  no  peace  time 
vake  remaining  at  the  close  of  the  war  for  money 
expended ;  *^ 

(h)  The  mobilittiiiiiii  of  materials  under  premiums  and 
priority  onfecs  for  ship  construction;  and 

(c)  The  concentration  and  use  of  new  and  inexperienced 
workmen  for  expert  work— to  meet  the  terrific  de- 
struction of  tonnage  caused  by  the  submarine  cam- 
£f**?«^  Central  Empires  from  April,  1915  to 
the  faM  of  1918,  and  to  promptly  take  care  of  the 
additional  needs  o|  transporting  our  troops  and 
supplies  to  aid  ty  AUiet-whoUy  war  costs  which 
did  not  add  a  dollar  to  Hie  value  of  the  ships  when 
completed  for  use  ia  .|piTate  industry. 

TMrd:  That  while  American  commodity  prices  during 
tfe  yw  11114  generally  fell  below  the  average'cost  of 
lJllO.1018--wh,eh  we  call  100%-y^t  the  British  demand 
for  war  shippmg  in  American  yards  il-ove  up  shipbuildinir 
prices  m  America  13.1%  more  than  in  1918,  with  \mZ 
steel  costs  and  kbor  costs  preirailipg  at  that  time  in 
•AmerMa* 

J^rth:  That  when  you  compare  the  commodity  prices 
for  three  periods  with  each  other;  to  wit: 

^  ^•^^  *^  period— 1910  to  1918; 
(b)  The  war  period— 1914  to  November,  1918; 
(cj  The  period  consisting  of  a  dayu-B^ember  81,  1920, 
with  more  deflation  yet  to  come  in  certain  lines, 
tlie  startling  fact  at  oncir  lippears  that  the  great  basic  prod- 
ucts and  commoditwtif  this  country  have  swung  back  in 
"^^J^}^  tie  peace  time  value  of  the  1910-1913 
KJTl!?'^''  approximate  very  near  to  the  1910- 

"^^^  "lejiriieat  grower,  the  copper  mine  owner,  have  got 


18 

to  sell  the  things  that  they  produced  at  high  khor  costs  in 
the  year  1920,  at  the  1910-1918  prices.  The  great  law  of 
economics  is  no  respecter  of  classes  nor  of  Government, 
and  our  ship  values,  at  whatever  they  cost  us  during  the 
war,  must  come  to  a  peace  time  basis. 

The  peace  time  prices  which  constituted  the  100% 
standard  of  welfare,  prosperity  and  of  living  in  this  coun- 
try as  of  July  81,  1914,  was  built  through  many  years  of 
struggle,  using  all  the  natural  resources,  energy,  indus- 
try, inventive  genius  and  our  power  of  organization — 
creating  great  productiveness  in  this  country.  We  are 
going  back  towards  that  basis  rapidly.  We  are  asking 
the  people  to  buy  our  ships,  knowing  that  they  have  to  so 
operate  them,  that  their  capital  investment  will  be  returned 
to  them  and  a  fair  return  on  their  money  during  a  period 
of  twenty  years  to  twenty-five  years  from  today,  while 
this  country  is  stabilizing  itself  more  and  more,  day  by  day, 
to  the  peace  time  standard  of  welfare,  prosperity  and  liv- 
ing, as  was  created  and  in  existence  on  Ju|y  81,  1914,  and 
toward  the  prices  of  1910  to  July  81,  14>t4. 

In  f aumess  to  the  pioneer  purchaser|  and  the  future  pur- 
chasers, it  almost  seems  that  we  shoild  offer  our  ships  to 
ttiem  on  the  basis  of  the  1910-1913  period,  but  so  that  no 
question  can  be  raised,  I  suggest  that  we  assume,  in  the 
five  year  war  period,  that  the  standard  of  living  of  this 
country  was  lifted  10%  a  year,  a  total  of  50%  in  jive  years 
terriie  advance;  and  thatifl  will  be  maintained  at  that 
point  for  the  neict  twenty  years,  during  the  life  of  these 
boats.  In  a  word,  that  we  did  lift  and  will  maintain  that 
high  standard  of  welfare,  prosperity  and  living  of  the  peo- 
ple of  the  United  States  50%  and  that  we  ask  the  pur- 
chasers— ^past  and  future — ^to  absorb  that  50% ;  in  a  word, 
that  we  place  the  price  of  our  ships  at  an  advance  of 
50%  of  the  1910-1918  cost,  which  approximated  $45, 
which  means  when  we  establish  that  rule  that  the 
Government  wiU  then  be  placed  in  a  more  favored  posi- 
tion as  against  any  group  or  class  of  private  persons  sell- 
ing commodities  in  America,  for  the  economic  swing,  as 
seen  by  the  present  figures  in  the  deflation  that  is  taking 
place,  is  far  below  that  point. 

There  are  three  great  ooipmodities  that  have  not  as  yet 
liquidated  their  prices: 

First:  Retail  Prices.  The  raw  material  producer,  the 
manufacturer  and  wholesaler  has  liquidated  his  prices  in 
the  main.  Within  three  months  from  now,  the  retailers 
throughout  the  country  will  have  to  clo^^Mt  their  present 
hi|^  priced  stodcs  imd  will  be  forced  to  ^isept  the  liqui- 
dated prices  on  the  new  goods,  through  coB%etition. 


14k 

Smmi:  War  Time  PrkeM  on  Steel  Producie  tmd  Coke. 
The  further  liquidation  of  steel  and  coke  prices  must  come 
shortly.  The  farmer  buying  motor  cars  and  parts,  trucks, 
trailers,  binders,  tractors,  gasoline  engines,  com  planters, 
plows,  etc.,  will  not  pennit,  nor  pay  war  time  prices  for 
Ms  steel  needs  tmA  accept  peace  time  prices  for  the  prod- 
ucts of  liis  toil.  He  wii  demand  relief  and  within  six 
months  it  to  belicTe  that  he  will  receive  'it. 

Since  writing  the  above,  I  note  in  the  morning  papers 
of  January  drd  the  announcement  that  the  Bethlehem 
Steel  Corporation  is  to  cut  the  prices  of  all  labor  from 
W%  to  m%  on  the  present  rate  of  wages,  which  means 
«  drastic  recession  of  fmmW%  to  40%  on  the  peace  tune 
rate  of  wages.  It  is  a  known  fact  that  from  75%  to  80% 
of  the  cost  of  all  finished  products  is  the  labor  item,  when 
considered  from  its  original  state  to  a  finished  one.  The 
recession  in  steel  prices  is  now  on.  Steel  is  the  largest  item 
in  aiipliiiidiiig  costs  and  in  the  next  two  years  it  will  move 
a  long  way  toward  the  peace  time,  100  %  standard. 

TMrd:  War  Time  Prices  of  Labor.  The  law  of  supply 
and  demand,  now  at  work  in  that  commodity,  which  is  in 
evidence  on  every  side,  plus  the  li^dation  that  has  oc- 
curred in  the  priees^  of  i&  ■tose:  commodities  purchased 

hy  labor,  is  already  rapidly  spliliiing  labor  prices  towards 
peace  time  rates. 

One  of  the  reasons  why  present  shipbuilding  prices  are 
stil  high,  though  there  is  practically  no  demand  in  Ameri- 
can yards,  or  in  foreign  yards  for  conslmelion,  is  due  to 
the  fad  that  steel  and  coke  hive  not  as  yet  been  fuly 
liquidated  in  price. 

Every  banker  in  America,  every  economist,  the  Secre- 
tary of  the  Treasury,  Mr.  Houston,  the  entire  Federal 
Reserve  Board,  have  for  six  mcmths  been  insisting  that  all 
American  values  be  liquidated  to  a  normal  peace-time 
basis.  Is  there  anyone  so  weak  in  reasoning  that  he  wil 
suggest  at  this  point  that  the  Government  can  force  a  sale 
of  these  steel  cargo  boats  in  the  open,  free,  commercial 
markets  of  America,  and  ask  farmers,  merchants,  lawyers, 
doctors.  Senators  and  Congressmen,  and  bankers  to  buy 
tiie  securities'  as  an  investment  in  these'  sted  cargvi'  boats, 
except  on  an  honest  and  fair  basis?  I  solemnly  predict 
that  the  steel  ships  will  rust  at  their  docks  irst— for  the 
economic  laws  of  trading  and  investment  are  inexorable. 

The  classiieation  0f  the  boats  has  already  been  made  by 
lilis  Board,  as^  to  '^dmcf  m  service;  machinerj  ^and  equip- 
ment, and  age^4nd  the  same  mtio  thai  has  been  established 
CMl  be  cstaUished  now.  A  depreciation  of  S%  per  annum 


Iff 

for  the  time  the  boats  have  been  in  the  water,  must  be  de- 
ducted from  the  base  price  when  established. 

These  inevitable  conclusions  have  forced  me  to  realize 
what  must  now  be  done  and,  too,  the  time  has  arrived  when, 
under  my  oath,  I  must  act.  Therefore,  incorporating  the 
foregomg  as  a  preamble,  I  move  the  adoption  of  the  fol- 
lowing resolution: 

BE  IT  RESOLVED: 

First:  That  the  top  price  of  the  steel  cargo  boats  owned 
by  the  Shipping  Board  be  fixed  at  $45  a  DWT  which  was 
the  peace  time  price  of  construction,  plus  an  increase  of 
50%  thereof,  as  the  base  price  for  the  new  steel  cargo 
boats,  with  the  same  differential  ratio  for  efficiency  in  ser- 
vice, machinery  and  equipment  that  has  already  been  es- 
tablished by  the  Board,  with  an  allowance  for  depreciation 
of  5%  per  annum  for  the  time  the  boats  have  been  ip  the 
water. 

Second:  That  all  contracts  made  with  pioneer  pur- 
chasers of  Shipping  Board  boats  be  recalled  and  the  pur- 
chase price  be  rewritten  on  the  basis  of  |he  new  prices  as 
established;  that  all  profit  made  on  those  boats  while  in 
the  hands  of  the  pioneer  purchase  be  taken  by  the  Gov- 
ernment ;  that  they  be  paid  a  service  charge  for  the  man- 
agement of  the  boats  while  in  their  charge,  the  same  as 
Managing  Operators,  on  the  basis  of  MO  Agreement 
No.  4 ;  and  that  interest  charges  incurred  or  paid  be  ad- 
justed in  consonance  with  the  new  prices  established;  and 

TMrd:  That  these  new  pricel  be  effective  as  of  Febru- 
ary 5, 1021,  so  that  Congress  have  an  opportunity  to 
have  full  knowledge  of  the  methods  and  reasons  for  the 
fixing  of  the  prices,  and  may,  if  they  so  desire,  dissent 
therefrom ;  that  copies  hereof  be  sent  promptly  to  all  mem- 
bers of  the  Finance,  Appropriations,  and  Commerce  Com- 
mittees of  the  Senate  and  the  like  C<Mnmittees  of  the 
House. 


♦Was  Industries  Board  Price  Fixing  Committee's 
Definition  of  the  terms  of  b^ch  commodity  listed  in 
table  on  fa0e8  10-11. 

BARLEY — Fair  to  good  or  Standard  Grade.    Market,  Chicago. 

CORN — Contract  grades,  cash.   Market,  Chicago. 

FIXIUR  (Rye) — ^la  Jute,  curlots;  f.  o.  b.  New  York. 

FLOUR  (Wheat) — Standard.    Market,  Minneapolis. 

MEAT  (Beeves) — Average  of  Cattle-Steers,  Choice  to  P%ie,  and  CatUe- 
Steers,  Good  to  Choice.    Market,  Chicago. 

HOGS — ^Average  of  Hogs,  heavy;  Hogs,  light;  Common  \a  Choice. 
Market,  Chicago.  \  ^ 

PORK — ^Mess  Fork»  old  to  new.  Market*  New  York. 

 \ 


16 


OATS — Contract  grades,  cash.  Market,  Chicago. 

RICE — ^Honduras,  Head  Domestic  Clean.   Market,  New  Orleaiit. 

RYB — No.  1,  cash.    Market,  Chicago. 

WlilBAT — Average  of  No.  1,  Northern  Spring,  mah,  Mliiiieftpolls;  No.  S, 

red,  Winter  at  Chicago;  No.  1,  Northern  Spring,  cash  at  Chicago. 

COTTON — ^Average  of  Upland  middling  at  New  York,  and  middling  at 
New  Oceans. 

HIDES — ^Average  of  Calf  ikin  No.  1,  country  at  Chleago;  green  salted 
packer;  heavy  iiatiTe  ateere  at  Clileaco;  pMfeara  lieaTy  Tmm  alaera 
at  Chicago. 

LHATHlilll — ^HameM*  oak  No.  1.  Market,  Clileagii. 

WOOL — Medium  fleece,  %  to  %  grade,  MO«Fei.    Marfceta.  laatem. 

Boston,  Baltimore,  Philadelphia  and  New  Tori. 
RUBBER — Para.    Market,  New  York. 
COPPER  (Ingot)— Electrolytic.   Market,  New  York. 
COPPBR  (Skeet)— Hot  rolled.   Market,  New  York. 
LEAD — ^Average  of  lead.  Pig,  desilveriied,  and  lead,  pipe  at  New  York. 

ClIMENT — Arerage'Of  Portland  Doaeatle  ipot;  BiMlaiale.  Market, 
New  York. 

COAL — ^ATerage  of  Anthracite  Chestnut.  Anthracite  Egg,  Antitraclte 
Broken,  Anthracite  Stove;  at  New  York. 

COAL — Bituminous,  Pittsburgh  run  of  mine;  Cincinnati,  1  o.  h.  caw. 

COKE — Connelsville,  Furnace,  f.  o.  b.  Ovens,  Market. 

PIQ  IRON  BASIC — Mahoning  or  Shenango  Valley  Furnace. 

PIO  IRON  BESSEMER— PIttabmrgh  Market. 

PIG  IRON  FOUNDRY-^o.  Southern,  Cincinnati,  Market. 

STEEL  SCRAP— Heavy,  Melting.    Market,  Pittsburgh. 

SCRAP — No.  1  Railroad  Wrought.    Market,  Pittsburgh. 

IRON  BARS — ^Best  Refined.    Market,  Philadelphia. 

STBBL  BHjLBTfl-iBeBaemer.    Market,  Pittaburgh. 

STEEL  BILLETS — (Ipen  Hearth.   Market,  Pittaburgh. 

SHEET  BARS — Bessemer.    Market,  Pittsburgh. 

SHEET  BARS — Open  Hearth.    Market,  Pittsburgh. 

STEEL  BARS — Base  Price.    Pittsburgh  Market. 

STEEL — Struetural.    Market,  Chicago. 

snacL  PLATMS— Tank.  Market,  Plttabnrgn. 

STEEL  SHEETS— Blue  Annealed,  No.  10  Gauge.    Market,  PittabnKgll. 
RIVETS — Button  Head,  Structural  1.    Market,  Pittsbnrgk. 
WIRE  RODS — Bessemer.   Market,  Pittaburgh. 


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